I am going through my text editor's cache and finding a whole lot of responses that for one reason or another I didn't post. Usually, because they got too long and drifted off of the subject. For some reason this is a less compelling reason to me today. Possibly because I have lost touch with anything resembling self-constraint.
Of course shareholders are far down the list. I don't see the relevance, though. If shareholders didn't benefit adequately they wouldn't be buying the stock in the first place and the price would fall until the benefits were reasonable.
The relevance is that the companies don't consider the stockholders very highly because the companies don't gain anything from the stockholders, the shareholders don't contribute any money to be invested in the company after the IPO.
Rather the companies have to share the profits with the shareholders. Profits that could otherwise be used to expand the business, to pay higher wages, to lower the prices of their products, to do more research to allow the company to innovate, to come up with new products and to improve the old ones, to improve productivity, etc. All of the possible uses of real investment.
Instead the companies have to pay out part of their profits to shareholders as dividends. And most of this money will stay in the stock market, buying additional shares of stock to produce the one kind of inflation that you consider to be beneficial, capital gains, or go into government bonds to finance the deficits caused by your tax cuts for the rich, or into corporate bonds, loaning it back to the corporations.
The stock market does provide a way to save money, in 401k's, etc. And yes, the money saved in this fashion does return to the economy, but as consumer spending, not as money used to increase business investment.
Savings of any kind is deferred consumer spending. It isn't deferred investment.
You've got it backwards--nobody said anything about deferred investment. It's current investment and deferred consumer spending.
We were discussing investments up until now. Is there some reason for you to change the subject now? Can't you explain how I am wrong about the stock market providing any appreciable amount of the money used for business investment?
I didn't change the topic--you keep trying to pretend there's no value in the stock market, I was showing one of the values.
I never said that I saw no value in the stock market. I specifically said that the stock market has value as a replica market and as a means to save. What it doesn't provide is any appreciable money for business investment.
The kind of investment that builds factories and new jobs, what the proponents of neoliberal economics promised.
As for providing money for investment--it does, but not directly. As you observe, mostly the stock market is simply traded around. What matters is it's effect on the venture capital market--which most certainly does create new investment. Without the stock market to provide a secondary market to liquidate the winners there would be far less venture capital investing.
If you consider funding, as I have repeated before, 1% of start ups every year to the tune of 50 billion dollars last year up from an average of 20 billion dollars over the last decade as being significant in a market valued at more than 50 trillion dollars. In other words in the best year for the venture capitalists in a decade they financed the equal of 0.01% of the total market valuation, 1% of the total number of start ups that year, 2014.
And once again, something that I have repeated over and over again without any acknowledgment that you even read it, the purchasing of IPOs doesn't provide any money from the stock market to fund investment. It is the venture funds that provide the 50 billion dollars to the 1% of the start ups that they fund.
The volume of IPOs last year was 30 billion dollars, total. But this wasn't just start ups, most of these were established private companies going public.
Compare this with the amount of money that that goes the other way. From the companies to the shareholders in the form of dividends and stock buy backs of more than one trillion dollars in 2015. Money that, once again my lack of short term memory friend, is money that could have been used to build production facilities, to improve products and innovate, to pay higher salaries, etc. etc. Instead it goes into the non-productive paper economy.
Of course, you are again wrong. Venture capitalists are the closest that the stock market comes to funding new businesses. But they only fund about 1% of all new businesses. And IPOs are much less than 0.01% of the stock markets' valuation every year and they aren't even for start ups. They are for existing businesses to go public, and the money raised from going public goes to the private owners of the business and the newly issued stock is a liability for the new corporation, not a asset that could be used for further investment. And even then most successful new start ups don't reward their founders by going public on the stock markets, but rather they are sold to established corporations that use retained earnings.
IPOs are the venture capitalists liquidating their winning positions to free up capital to invest in other businesses. You're also distorting the picture by ignoring the ones that failed--that's still investment.
No once again you are completely wrong. The 50 billion dollars in 2014, 2015 numbers were not available, included both winners and losers.
As for being sold to existing businesses--so what? The existing business has to compete against what they could get from an IPO and this drives up the price--and thus drives up the incentive to invest.
Once again, IPOs are for existing established companies. IPOs are more expensive to initiate than a buyout. It is only worth going to an IPO if you have high profits and you can take advantage of the unsophisticated investors in the stock market. You can't sell potential generally in an IPO.
Furthermore, it doesn't matter whether venture capital funding gets involved--the stock market is a major driver of investment that gets sold.
I don't know if it is intentional or if you are just unintentionally ignoring me.
What the stock market doesn't do is to provide the money that corporations use to invest. The business kind of investments that the proponents of supply side economics promised us. The investments that provide jobs.
Wall Street has managed to conflate what they do, which is best described as taking side bets on the performance of the nation's publicly held corporations, with investing in the future of the country, with the investments that actually build something real. Which is today done by the corporations using more often than not retained earnings.
What the stock market does do is to divert money that could be used in many ways much better for the economy into its non-productive casino. About one trillion dollars in 2015.
I don't know what you mean when you say that the stock market is "a major driver of investment that gets sold."
Once again, you and virtually everyone else conflates business investment with the investment in the stock market, which I am contending is no more valuable to the nation than betting in a casino.
And remember that more than half of the money that we suppressed wages for to increase investment are sitting in the Treasury bills that were issued to finance the deficit caused by the tax cuts for the rich needed to produce the extra money in the hands of the already rich to increase the money available for investment.
(As opposed to the business started simply for the income it produces with no intent of selling out. The stock market has no effect on the latter.)
Because the heirs become progressively less competent generations after generation.
While that can be an issue the biggest factor is simple dispersion. The total fertility rate for the US is 1.8 and in my experience the well to do tend to have larger families (for them family size isn't subject to meaningful financial limits) so lets say 2.5 kids per rich couple. Lets say you leave $100 million to your heirs. $45 million after the estate tax, spread between 2.5 kids = $18 million for the next generation. Note that it's reduced 5x. The next generation is only going to inherit $3.2 million. Now you're down to the point that you can't just live on the earnings and leave the inflation-adjusted capital for the next generation. With no inheritance tax at all this would take about twice as long but it would still happen.
Yes, a single amount of inheritance will disperse over the generations. This is not what I am talking about or what Piketty is talking about. The only people who are seeing their wealth increase are the upper 10% with most of the increase going to the upper 1%. If we were to stop our wealth for the already wealthy policies tomorrow it would take decades for the huge amount of wealth that has been accumulated in the last thirty five years to dissipate.
I was joking about the heirs growing incompetence, by the way.
Most of the rich that I have encountered have been pretty incompetent in the first generation.[/half joking]
So you don't believe that globalization had the effect of lowering the wages in the US because of the serious devaluation of the dollar that occurred compensated for the nearly twenty to one higher wages in the US? What planet are you living on or more likely what drugs have you been doing?
Globalization is routinely blamed for things which it didn't cause. Most of the effects were actually due to automation. The jobs didn't go overseas, they went to robots and other efficiency improvements.
While it hasn't yet reached the point that bringing jobs home from China is worth it, it's also rarely worth it to send jobs to China these days. You get a lot more from a US worker and you don't have to deal with a factory that's always trying to gyp you.
I agree that globalization is blamed for things that it had no part of and to a degree that it doesn't deserve. And certainly it is largely unavoidable.
The problem with the impact of globalization in the US is that all of the negative impact has been on workers' wages and the positive impacts have been split between profits and lower prices. The benefits have gone to the wealthy in a big way and to the entire population in lower prices without compensating the people who lost jobs and whose wages were cut.
This means that the people who disproportionally benefited from globalization, the rich, are the people who decide whether or not to send our factories and our jobs off shore. In other words the US is suffering disproportionally from globalization because of the incentives built into our wealth friendly economic policies. If the wealthy had to face higher taxes to provide a stronger safety net when jobs are shipped off shore there would be fewer jobs shipped there.
Automation is a major reason to bring the factories back to the US. The investment required is high enough that companies will want the factories on US soil.
Automation seems to be considered to be the trump card in these discussions, the point that wins the hand without any further discussion.
I don't play this way. Do you have any studies to prove that automation has cost us many more jobs than globalization? You do realize that automation adds jobs too? It is like our arguments about job killing regulations, it is not true. Regulations add more jobs than they cost. How could it not be? They add costs.
Automation will cost more jobs than it adds for sure. But the jobs that it adds will be better, higher paying jobs.
And I have never seen what solution the free market enthusiasts propose for the jobs lost to automation. Please elaborate.
My solution is the same that we used in our last and much bigger round of automation when one industry which employed 90+% of Americans went down to employing under 2%, the mechanization of agriculture. Along with nearly the same solutions that I propose for the problems with globalization.
A much stronger safety net. A shorter workweek. More sick leave. Reducing the retirement age. Having students spend longer in school. Splitting the monetary gains from productivity between wages and profits evenly. More holidays and longer vacations. Increasing retirement pay to encourage early retirement. Tax payer provided parental and sick relative leave. No child or teen employment.
Pretty much anything that conservatives oppose. They are always wrong.
My wife has just gone to working three days a week, 10 hours a day. This is down from thirty six hours a week, 4½ days a week that she use to work. She is working 20% fewer hours but her employer and she split the difference and she took a 10% pay cut. Her employer will restore her pay cut if they both agree that she is as productive as she was working 36 hours a week. She is a mechanical engineer.
This is wonderful for us, we will be able to reduce the amount of nursing that I have to pay for, at $23 an hour.
And because there are more steps in the production of modern products there has to be more profit as a cost in the final product and this why wages are now lower and corporate profits have more than doubled as a portion of GDP? And not because the proponents of neoliberal economics said that the economy was short of investment and that if we changed many of our economic policies that supported a balance between profits and wages to where they favored profits and we reduced the tax burden on the rich and increased it on everyone else, the non-rich, then there would be more money for investments and more growth in the economy than there had been and we changed these economic policies, that none of this is why we have more profits now and stagnating wages, it is because we have more steps in the production of modern products?
What you continue to miss is that a greater portion of the economy is going into producing the means of producing the goods. This of course increases the share of the economy that's corporate but at the same time it increases the standard of living of society.
So you are arguing that productivity has decreased and because of that profits are a large part of the economy, of GDP, and wages are a smaller part of the economy.
I'm curious what measure you use to quantify productivity. I don't know of anyone else who is arguing that productivity has dropped over the last thirty five years. Or is this just another one of your conditional arguments that you will contradict in the very next sentence?
Furthermore, the "lower" wages you keep referring to are bad data--because they're only looking at wages. Most good jobs these days are salaried.
No, I am looking at personal income, wages, salaries, etc. What the BLS defines as "Average hourly and weekly earnings of all employees on private nonfarm payrolls." Unskilled laborers to CEO's.
However, it doesn't really matter which data set you use, they all show the wages earned by the lower 90% has barely kept up with inflation and the wages of lower 50% have gone down.
It is like you have only two large stop signs to wave, one says UNEMPLOYMENT and the other says INFLATION. And if you can't make any headway with one you wave the other one.
Because they're true. You keep advocating for things which will drive up wages--and continue to ignore the fact that if you increase wages without increasing productivity you get inflation rather than any lasting benefit to the workers.
And you apparently base your entire argument on the absurd idea that productivity has been going down. I have a hard time understanding how you believe this.
My entire rational is that we must increase wages so that the employees benefit from their rising productivity. Something that hasn't happened in the last thirty five years of neoclassical economics. I want to go back to what was done in the previous thirty five years, 1945 to 1980, when the owners and the employees evenly divided the money gained from the increases in productivity.
By your own reasoning this will not result in any inflation.
You convey to me the sense that if policy changes like increasing the minimum wage results in even one person becoming unemployed, even one marginal business going out of business, or even the smallest up tick in inflation that it is sufficient to void any of the good that the policies otherwise produce. Is this correct?
No. I think we should look at the balance of good and bad. However, I do not think the total payroll is a good measure of the balance--even if total payroll rises that doesn't mean there's a net benefit. The thing is I score the guy laid off much more highly than the guy who got a bit more.
I am sorry, you don't think that payrolls are a good measure of incomes? That rising incomes don't produce any benefit?
You must be a wonderful employee for your employer or the worse boss for your employees.
Do you think that we have had ever increasing income inequality over the last thirty five years or not?
Or are you going to retreat into colorado's "I am so confused by all of these numbers" excuse?
Also, there's the issue of whether the guys who get more actually benefit or simply see it eroded by inflation. Basic economics says it should be eroded by inflation eventually--and thus have zero lasting benefit.
So you don't believe that there is any benefit in raising income?
So we should just keep more and more of our national income going to profits and the rich because increasing incomes produces no net benefit?
Is there a downside to ever increasing profits and ever increasing income inequality that you defend?
Why doesn't boosting the profits and the incomes of the already rich not produce inflation?
If we want to help low-wage workers I think a much better approach is through expanding the EITC. That's basically a non-starter in today's political climate, though--the right simply wants to screw the poor people while the left wants off-the-books answers that they can pretend are paid for only by the rich.
Well, I am neither and I don't consider you to right or left either. So this statement doesn't apply to this discussion. You don't want to get me started on the shortcomings of either.
This thread is not about politics anyway. It is about the shortcomings of my understanding of basic economics. And how, for example, I don't understand that productivity has actually dropped and that profits have to go up to compensate for the loss in productivity. You were about to explain how this all works and why everything that I have seen that productivity has increased is wrong because total payroll isn't indicative of income because things have to be balanced. As you can see I am still having trouble understanding you.
Of course, I disagree with expanding the EITC, anyone who is not a corporation is going to be demonized as a freeloader for receiving welfare from Uncle Sugar.
The EITC is an addition to the complexity of the market, taxes have to be collected and the money distributed to the lower paid workers. It subsidizes low wages. And anything that the government subsidizes we will get more of. We don't want to have more low wages.
The simplest thing to do is to boost wages and to decrease profits. Inverse supply side economics. Slowly over time, splitting the gains from productivity between wages and profits instead of giving it all to profits. This won't cause any inflation, as you concede.
And yes, we have had rising productivity for the last century or more. I believe that you misspoke. I couldn't resist having a little fun.
I always have to mention that I am amazed that the people who present themselves as a champion of capitalism always seem to believe that a capitalistic economy is a fragile clockwork mechanism that can be thrown off by the slightest deviation. But it isn't true.
Our mixed mode, modern economy is the product of hundreds of years of evolution. Trying new things and discarding those that don't work. We don't have a gold standard or supply and demand setting prices today not because some evil government decided to get rid of them but because the market tried them and found them wanting or simply out grew them.
There is a lot to be said in favor of bankruptcy. It is the engine of creative destruction. Of recycling failed businesses and their assets including their employees. Creative destruction allows more efficient and better managed companies to gain market share.
Our modern fiat money creates money not at the bequest of the government but through consumer debt. We need personal bankruptcy to reduce private debt in the economy and to support demand. This is more important under your beloved neoliberal economics because we are intentionally suppressing wages and demand to increase profits and supply.
Since you are one of the die hard, "inflation is caused by the Fed printing too much money," Irwin Fischer's quantity of money champion, why do you think that a labor shortage will create inflation? Why would the Fed print too much money?
Printing too much money causes inflation but it's not the only cause of inflation.
This is like pulling teeth.
What are the other causes of inflation?
As a percentage how much of the inflation that we see over the long term is created by the Fed printing money?
There has never been a recorded instance of inflation from printing money by the government. The Hyperinflation of post World War I Germany and more recently of Zimbabwe were caused by excessive external debt denominated in a foreign currency, coupled with a high negative trade balance.
The soft or good inflation, what Keynes called semi-inflation because it spurs investment and real growth, is caused by demand exceeding supply, more having more demand than can be produced. But in just some industrial segments, not economy wide.
Real inflation is an income distribution problem, with more money going to wages than can be justified by the increases in productivity and the growth of the economy. Wage/wage inflation.
Back in the real world of the real economy, yes, we are trying to increase wages to increase demand and to lower profits. Yes, this runs the risk of increasing inflation.
And what you don't understand is that average corporate profits aren't that high in the first place. There are some high flyers but not the marketplace as a whole.
Yet, corporate profits in the whole economy have doubled as a percentage of GDP over the last thirty five years. Wages as a percentage of GDP have dropped by the same amount of GDP as profits have increased, 5% of GDP. Meanwhile, business investment has gone down, as a percentage of GDP. During this thirty five years profits have gone from twice the amount of business investment to four times.
These are the pesky facts that you are denying.
Once again, the question that you won't or you can't answer. We are still intentionally suppressing wages to increase profits, how much more profits do you want? We have gone over the lifetime of neoliberal economic policies from having profits as twice the amount of business investment to four times the amount of business investment, how much higher should we go?
But since inflation is a real result of conditions in the economy we can easily see that the economy can stand a substantial increase in wages and in demand. And what tells us this? It is not that we know that the Fed won't insanely print too much money. It is because the capacity utilization in the economy is at an all time low for a recovering economy. Because the economy has unused capacity to meet the demand, quickly, easily, without much investment.
But you're applying a permanent fix to a temporary problem. (And I'm not sure there's that much unused capacity in the first place because of population growth.)
I would hardly call the thirty five years that wages for the 90% have stagnated a temporary problem.
And what do you call the inverse that you want to continue, suppressing wages to boost profits? Increasing income inequality to boost business investment that never seems to increase? Almost as if the amount of business investment depended on something other than the amount of money available to invest.
So you don't believe that we can measure the unused, the idle capacity of the economy? That we haven't completely mastered the mathematical complexity of addition?
And because we would raise the wages very slowly. Just like we raised profits very slowly over the last thirty five years. So slowly that no one really notices. So slowly that the economy has time to adapt, to increase real investment to meet the increased demand and to avoid inflation. Because we wouldn't be cutting existing profits. We will be reducing the amount of the growth of the profits , the gains from innovation and the gains from the improvements in productivity.
So we boil the frog. The frog still gets cooked.
Yes, continuing with your preferred policies to stagnate wages and to keep increasing profits doesn't risk inflation in the real economy.
The money from the increased profits doesn't cause inflation in the real economy because this money is largely removed from the real economy. Because this money isn't invested in the real economy, it doesn't create any demand in the real economy.
The money from the increased profits is moved into the paper economy of Wall Street and the paper economy of the government debt incurred to making the tax cuts for the rich. But it does increase the inflation in the paper economy. But inflation in the paper economy has been defined as an economic good and given a different name, capital gains. It also creates asset bubbles. And it creates financial market instability.
Assuming you are right note that your approach causes massive inflation. You'll destroy those profits but with little long-term benefit to the workers.
Assuming that I am right? This thread is for people to show me the errors of my ways. I am waiting for you to tell me how what I am proposing will cause massive inflation.
There is no reason why shifting a part of the revenue flow from profits to wages would produce massive inflation if it is done slowly, to claim a portion of the gains from improvements in productivity, as the supply side economics lead shift of revenue from wages to profits was done over the last thirty five years.
Changing it slowly will allow the economy to adapt and to build the additional production facilities required to meet the increased demand. I feel like I make this point in every discussion that I have with you. Without you addressing it.
Once again, I want to increase wages by 50% of the gains from increased productivity. Which is now going 100% to profits. So that the workers can claim a portion of the gains from the increases in their productivity. All of which you have already agreed won't cause inflation a couple of paragraphs back. Yet here you still assert that it will cause massive inflation. Which is it?
